Investor Group Files Complaint Against Bed Bath & Beyond

An activist investor group, Legion Partners Holdings, Macellum Advisors and Ancora Advisors, said that Legion has filed a complaint in the U.S. District Court, Southern District of New York against Bed Bath & Beyond regarding the group’s proxy fight.

Legion said that the complaint focuses on the retailer’s efforts to “subvert the rights of shareholders” in relation to Legion’s nomination of a full slate of director candidates for election to the board of directors at Bed Bath’s 2019 Annual Meeting of Shareholders; and specifically, the company’s refusal to take steps to ensure that the election of the group’s director nominees will not trigger certain change in control provisions.

The investor group issued the following statement in connection with the filing of the complaint:

“In order to avoid triggering potential adverse financial consequences under Bed Bath’s $1.5 billion notes if a majority of our nominees were to be elected at the 2019 Annual Meeting, the board can take the simple step of approving our nominees. Rather than doing this in a timely fashion— in order to ensure a free and fair election without the threat of such potential consequences— the board has instead sought to put up unnecessary obstacles, leaving us no choice but to file a legal complaint against the company.”

“We believe the board is trying to disenfranchise shareholders to gain an unfair advantage at the 2019 Annual Meeting, and we are highly disappointed that Bed Bath has resorted to these maneuvers. All shareholders should recognize these tactics for what they are: further evidence that the current board and leadership of Bed Bath are unable or unwilling to act in the best interests of shareholders and that more meaningful change is needed now.”

“To be clear, under the company’s indenture governing approximately $1.5 billion of senior unsecured notes, a change of control can occur upon a change of a majority of the board followed by a rating downgrade. If such a downgrade occurred after the election of Legion’s slate, the company would need to make a change of control offer at 101% of the principal amount of debt under the notes plus accrued interest.”

“The board has the discretionary authority to approve of a dissident’s nominees as “continuing directors” for the sole purpose of preventing any negative effects from shareholders exercising their right to effect meaningful change at the board level. Such approval is not an endorsement or recommendation and the company may otherwise oppose the nominees in a proxy fight. Approving the nominees as continuing directors allows shareholders to elect the most qualified directors on the merits without being influenced by the significant payments that the company may be obligated to make if the change of control provisions were triggered.”

“Importantly, courts have held that the failure to provide such an approval may constitute a breach of the board’s duty of loyalty and care. Despite repeated requests to have the board approve of our nominees, the board has refused, arguing it may not be able to “approve” of the nominees without endorsing the nominees or interviewing them, notwithstanding Legion Partners Holdings submitting almost 1,500 pages of information required under the company’s onerous requirements and subsequent requests for additional information, which clearly has provided the board sufficient information to assess the qualification of the nominees.

“If shareholders conclude that the investor group’s nominees should be elected to the board, that determination alone should suffice. The board’s suggestion that it can override shareholder wishes and risk a default under its material agreements is improper and unlawful.

“The company’s tactics, in our view, represent further examples of its seeming focus on resisting the will of shareholders at all costs. Sweeping change is urgently needed, which is why Legion Partners Holdings has nominated a slate of highly-qualified, independent candidates to the board at the 2019 Annual Meeting of Shareholders. Given the company’s recently-announced reduction in the size of the board to 10, we have updated our slate to 10 nominees. We are committed to continuing to take on the hard work necessary to make improvements at Bed Bath for the benefit of all stakeholders.”

Update: Bed Bath & Beyond has issued the following statement in response to the decision of the investor group to reduce its slate of nominees to stand for election at the company’s 2019 Annual Meeting of Shareholders from 16 to 10, and the activist group’s subsequently filed complaint:

“As part of our effort to constructively engage with the activist group, we have been asking for their input on our business plan and governance, including inviting them to participate in our board transformation, and continually asking them to disclose who they actually intended to nominate to the board. After consistently refusing to engage in good faith on these matters, the activist group has now finally disclosed who they intend to nominate, and have reduced their 16-person list for our 10-person board to 10 nominees.

“Regarding the complaint filed by the activist group with respect to the double-trigger change-of-control provision in the company’s indenture, the company has never said that it would not approve the activist group’s candidates once they were finally named, but rather stated that the board was considering the request and would act in a manner consistent with the company’s obligations under the indenture.

“The company has repeatedly asked the activist group to allow the board or a committee of the board to interview their candidates to seek to ensure that any board action would be consistent with the board’s fiduciary duty to its shareholders and the company’s obligations under the indenture. The activist group has refused to cooperate and has been unwilling to make their nominees available to be interviewed. To be clear, the activist group is asking the board to take actions that may expose the company and its shareholders to significant financial and operational risk.

“We continue to request that the activist group allow the board, which as of May 1, 2019, includes five new independent directors, to interview their nominees for this purpose. If the activist group continues to refuse to let us interview their 10 nominees, the board will be compelled to assess each of the nominees based solely on information that is publicly available and consistent with the company’s obligations under the indenture.

“Bed Bath & Beyond has attempted to settle with the activist group on several occasions and we remain ready and willing to engage constructively with the activist group to reach a resolution.”

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